Why the case matters

The case reported below concerns a music tutor who was a part-year worker, that is someone who only worked certain weeks of the year but who was contracted to work the whole year. She brought an unlawful deduction claim in relation to holiday pay, arguing that the way her employer calculated her entitlement to holiday pay was unlawful and resulted in a lower payment overall than if they had done the calculation in accordance with the Working Time Regulations 1998 (WTR 1998) and statute. At first glance the case might only appear relevant to those in certain sectors with part-year workers, such as education or hospitality. However, it has wider ramifications since the 12.07% calculation sometimes used to calculate holiday entitlement for atypical workers has now been completely discredited. Employers must decide whether to change their approach to the calculation of holiday entitlement and pay if not currently compliant.

[Note that the 12.07% figure derives from the fact that the standard working year is 46.4 weeks (that is, 52 weeks less the statutory 5.6 weeks holiday entitlement) and 5.6 weeks is 12.07% of 46.4 weeks.]

Facts

Ms Brazel was a visiting music teacher at a school run by the Harpur Trust (Harpur). She was employed under a permanent contract but only paid for the hours she actually worked during term time. She was entitled to 5.6 weeks' paid annual leave, in respect of which she was paid three equal amounts at the end of each term. Harpur calculated Ms Brazel's earnings at the end of each term and paid her 12.07% of that figure (an approach endorsed by Acas guidance prevailing at the time in respect of atypical workers).

Mrs Brazel brought an employment tribunal claim for deductions from wages in respect of holiday pay, arguing that the 12.07% approach to how much holiday she was entitled to was incorrect. She asserted that her holiday entitlement should be paid according to the averaging provisions in section 224 of the ERA 1996, namely at the level of her average earnings over the 12-week period immediately before holiday was taken. That approach would have resulted in her having received a higher payment.

An employment tribunal dismissed her claim. It held that a pro rata principle should apply, enabling employers to cap holiday at 12.07% of annualised hours worked. This approach required reading words into the WTR 1998 to achieve this effect. Ms Brazel appealed successfully to the EAT. Harpur then appealed to the Court of Appeal, which found in Ms Brazel's favour, then again to the Supreme Court.

Decision

The Supreme Court found in Ms Brazel's favour and dismissed Harpur's appeal. It held a simple line, agreeing with the Court of Appeal, that the amount of leave to which a worker is entitled under UK law is 5.6 weeks' a year and should not be pro-rated for those with part-year working arrangements. The result means that those working only certain weeks during the year (but who are contracted for the whole year) are entitled to the full 5.6 weeks' paid leave, not an amount proportionate to the number of weeks actually worked during the year.

On how to calculate holiday pay, the Court held that the rate of pay should be calculated using the worker's average pay over the previous 12 weeks (discounting weeks when no remuneration was payable). There was no basis for using the rough and ready 12.07% method of calculating holiday pay which has been adopted by many employers as a practical means of calculating holiday pay for those who work irregular hours. 

Although there is EU case law to support pro-rating, the Supreme Court declined to depart from the method of calculation required by the UK Working Time Regulations 1998. The Court was very clear that this is the correct approach to calculating holiday pay, even if adhering to the statutory interpretation of a week's pay might result in a part-year worker receiving a higher rate of holiday pay than other employees. The Court's view was that a slight favouring of workers with an atypical work pattern is not so absurd as to wholesale revision of the statutory wording.

Why we should care

Part-year workers are entitled to 5.6 weeks' leave, not a proportion of that amount which takes into account their part-time hours. Holiday pay should be based on an average of pay over the previous 52 weeks but excluding any weeks where the individual has not worked at all (note that the 12 week reference period for the purposes of calculating holiday pay changed in April 2020 to 52 weeks). It will be a question for a business's payroll provider as to how practical it will be to calculate casual workers' holiday pay on this basis using their existing systems. This will be disruptive if to date businesses have used the 12.07% formula and now wish to change their approach.

Employers are able to notify workers that they are required to take their paid holiday at certain times of the year. One way of managing the unpredictability of when holiday may be taken and at what rate this will be paid, would be to require staff to take holiday at specific times, when they are not expected to work. Ideally their contracts should make this very clear and that the company can notify them when they need to take paid holiday.